Voluntary Health and Welfare Organizations,
Health Care Entities, and Colleges and Universities
Chapter 21
Chapter 21PRIVATE
VOLUNTARY HEALTH AND WELFARE ORGANIZATIONS,
HEALTH CARE ENTITIES, AND COLLEGES AND UNIVERSITIES
Answers to Questions1 The financial statements required for
nongovernment not-for-profit entities include a balance sheet, a
statement of activities, and a cash flow statement. Voluntary
health and welfare organizations also provide a statement of
functional expenses.
2 Each hospital, college, and voluntary health and welfare
organization (and other not-for-profit organizations as well) must
be evaluated to determine whether it meets the definition of a
government in the authoritative literature. Those that meet the
definition of a government must apply the government GAAP
hierarchy. GASB standards are the most authoritative guidance for
these entities. All other entities are to apply FASB standards.
3 A conditional promise to give depends on the occurrence of a
specified future and uncertain event to bind the promisor. An
unconditional promise to give depends only on the passage of time
or demand by the promisee for performance.
A donor-imposed condition provides that the donor will have his
resources returned (or will be released from the promise to give)
if the condition is not met. A donor-imposed restriction only
limits the purpose or timing of use of the contributed assets.
4 Nongovernment not-for-profit entities report depreciation on
their property. Governmental health care entities also report
depreciation. Colleges and universities and voluntary health and
welfare organizations that are governmental entities do not record
depreciation. (Many of these organizations will report depreciation
after the GASB adopts its expected new reporting model.)
5 Unconditional promises to give with payments due in the next
period are reported as restricted support (net of an appropriate
allowance for uncollectible accounts) that increase temporarily
restricted net assets, even if the resources are not restricted for
specific purposes.
6 When a time restriction is met, temporarily restricted net
assets are reclassified as unrestricted net assets. The entry
includes a debit to temporarily restricted net
assets--reclassifications out and a credit to unrestricted net
assets--reclassifications in. (Different account titles, such as
amounts released from restrictions, are permitted as well.)
7 Gifts in kind are reported as unrestricted support that
increases unrestricted net assets if the not-for-profit entity has
discretion over the disposition of the resources and a fair value
can be reasonably determined. If fair value cannot be determined,
the items are recorded as sales revenue when they are sold. If the
not-for-profit entity has little or no discretion over disposition
of the items, the gifts in kind should be accounted for as agency
transactions.
8 Program services of voluntary health and welfare organizations
are expenses incurred in meeting the social service objectives of
the organization. Examples are research, public education,
community services, and patient services. Supporting services
consist of the organization's administrative and fund raising
costs, and expenses for these items are so classified in the
statement of activities.
9 The statement of functional expenses of voluntary health and
welfare organizations is intended to reconcile the functional
classification of expenses (which results in highly aggregated
data) with basic object-of-expenditure classifications that are
less aggregated and easier for many users to understand.
10 Contributed services are recognized only if the services (a)
create or enhance nonfinancial assets of the organization or (b)
require specialized skills, are provided by individuals possessing
those skills, and would typically need to be purchased if not
provided by donation.
11 Charity care is excluded from both gross patient service
revenue and from expense. The hospital's policy for providing
charity care and the level of charity care provided are disclosed
in notes to the financial statements.
12 Net patient service revenues of hospitals are measured by
deducting courtesy allowances and contractual adjustments from
gross patient revenues. Uncollectible accounts expenses are not
deducted in computing net patient service revenues. Net patient
service revenues are reported in the statement of activities.
13 The three major revenue groupings used by hospitals are
patient service revenues, other operating revenue, and nonoperating
gains. Examples are:
Patient service revenues -- routine care, emergency room,
recovery room, pharmacy
Other operating revenues -- tuition from educational programs,
research grants for specific purposes, gift shop sales, television
rentals
Nonoperating gains -- unrestricted gifts, unrestricted endowment
income, gain on sale of plant assets, rents from property not used
in hospital operations
(Premium fees also are significant for many hospitals today.
They would be reported as a separate line item under operating
revenues.)
14 Both the provision for bad debts and depreciation are
expenses of a hospital. Hospitals use full accrual accounting
procedures.
15 FASB Statement No. 117 requires not-for-profit organizations
to provide a set of financial statements that includes a statement
of financial position, statement of activities, statement of cash
flows, and accompanying notes. Within the financial statements,
not-for-profit organizations classify net assets, revenues,
expenses, gains, and losses according to three classes of net
assets unrestricted, temporarily restricted, and permanently
restricted based on the existence or absence of donor-imposed
restrictions.
16 GASB Statement No. 35, Basic Financial Statements and
Managements Discussion and Analysis for Public Colleges and
Universities extended GASB 34 requirements to cover governmental
colleges and universities. Implementation is gradual and is
required to begin in the largest public educational institutions
with fiscal years beginning after June 15, 2001. After complete
implementation, government colleges and universities will no longer
have the option of using either the AICPA college guide model or
the governmental model for accounting and financial reporting
previously provided by GASB Statement No. 15.
17 Much guidance comes from the Financial Accounting and
Reporting Manual, an accounting manual prepared by the National
Association of College and University Business Officers (NACUBO).18
GASB Statements No. 34 and 35 require special-purpose government
with more than one governmental program or both governmental and
business-type activities to present both government-wide and
financial statements, as well as the MD&A, notes, and required
supplementary information. Special-purpose governments with only
one governmental program may combine fund and government-wide
statements, whereas those with only business-type activities should
report only the financial statements required for enterprise funds,
as well as the MD&A, notes and required supplementary
information.
19 Functional classifications include the following:
Instruction. Expense for the instruction program
Resource. Expenses to produce research outcome
Public Service. Expenses for activities to provide
noninstructional services to external groups.
Academic support. Expenses to provide support for instruction,
research, and publications
Student Services. Amounts expended for admissions and registrar,
and amounts expended for students emotional, social, and physical
well-being
Institutional support. Amounts expended for administration and
the long-range planning of the university
Operation and maintenance of plant. Expenses of current
operating funds for operating and maintaining the physical plant
(net of amounts to auxiliary enterprises and university
hospitals)
Student aid. Expenses from restricted or unrestricted funds in
the form of grants, scholarships, or fellowships to students.
20 Property, plant, and equipment acquired by a not-for-profit
organization with unrestricted or restricted resources may be
recorded at acquisition as unrestricted or temporarily restricted.
If temporarily restricted, the assets are reclassified when
depreciation is recognized.
SOLUTIONS TO EXERCISESSolution E21-1
Solution E21-2
Solution E21-31c
1b
1b
2a
2a
2b
3d
3d
3c
4c
4b
4d
5b
5c
5a
Solution E21-4
Solution E21-5
Solution E21-61c
1b
1d
2a
2a
2b
3b
3d
3a
4a
4c
4c
5d
5d
5b
Solution E21-7
Solution E21-8
1b
1a
2b
2a
3c
3a
4b
4c
5b
Solution E21-9Contributions receivable$20,000
Allowance for uncollectible contributions
$ 600
Unrestricted support-contributions
13,580
Restricted support-contributions
5,820
To record contribution revenues and an allowance
for uncollectible accounts.
Contributions that are not due until the next period imply a
time restriction unless the donor explicitly stipulates that the
pledge is for current expenditures. Thus, unrestricted net assets
are increased by $13,580 and temporarily restricted net assets are
increased by $5,820.
Solution E21-10Cash
$ 200
Restricted support--contributions
$ 200
To record a gift restricted to a special project.
Expenses--community service [program services]$ 200
Cash
$ 200
To record expenditures for restricted purpose.
Temporarily restricted net assets--
reclassifications out$ 200
Unrestricted net assets--
reclassifications in
$ 200
To record satisfaction of temporary restriction.
Solution E21-11
Program services:
Education$20,400
Public Health15,700
Research 12,000$48,100
Supporting services:
Fund raising$11,400
Management and general 5,500$16,900Solution E21-12
Equipment
$6,000
Unrestricted support--Contributions
$6,000
To record receipt of donated equipment.
Depreciation expense--community services$1,500
Accumulated depreciation--equipment
$1,500
To record depreciation expense for the year on
unrestricted long-lived assets.
Cash
$8,000
Restricted support--contributions
$8,000
To record receipt of donation restricted to the
purchase of a truck.
Accrued interest receivable$ 215
Restricted revenue--investment income
$ 215
To record accrual of interest on funds
restricted for the purchase of a truck.
Note that the contribution of equipment increases unrestricted
net assets in this case. The contribution of cash restricted for
long-lived asset purchases increased temporarily restricted net
assets, as did the donor-restricted investment income on those
funds.
Solution E21-13Total assessed tuition
$750,000
Refunds for class cancellations
(15,000)
Revenue reported in the unrestricted current fund
$735,000Note that uncollectible accounts and scholarships are
reported as expenditures in government college and university
accounting. In a nongovernment university, scholarships granted by
the university would be deducted from revenues.
Solution E21-14Restricted Current FundCash
$3,000,000
Fund balance--tobacco research
$3,000,000
To record receipt of restricted grant.
Expenditures--tobacco research$1,200,000
Cash/Vouchers payable
$1,200,000
To record expenditures for tobacco research.
Fund balance--tobacco research$1,200,000
Revenues--grants
$1,200,000
To record grant revenue "earned."
In the restricted funds column of the statement of revenues,
expenditures, and other changes, a university would report revenues
of $1,200,000, expenditures of $1,200,000, and excess of restricted
receipts over revenues of $1,800,000 to reflect the transactions in
this exercise.
SOLUTIONS TO PROBLEMS
Solution P21-1Payment of salariesExpenses--management and
general$ 2,920
Expenses--community service 11,680
Cash
$ 14,600
To record payment of salaries allocated 20%
to management and general services and 80%
to program services.
Donated servicesExpenses--management and general$ 900
Unrestricted support--donated services
$ 900
To record donated services.
Donated facilitiesExpenses--management and general$ 600
Expenses--community service 2,400
Unrestricted support--donated facilities
$ 3,000
To record allocation of donated facilities 20%
to management and general and 80% to program services.
Payment of utilitiesExpenses-management and general$ 360
Expenses-community service 1,440
Cash
$ 1,800
To record payment of utilities allocated 20%
to management and general and 80% to program
services.
Purchase and use of suppliesSupplies inventory$ 300
Cash
$ 300
To record purchase of supplies.
Expenses-management and general$ 60
Expenses-community service 240
Supplies inventory
$ 300
To record allocation of supplies expense 20%
to management and general and 80% to program
services.
Administration and other expensesExpenses-management and
general$ 1,200
Expenses-community service 4,800
Cash
$ 6,000
To record payment of recordkeeping expenses
allocated 20% to management and general and
80% to program services.
Solution P21-1 (continued)
Gifts in kind are reported as contributions since Share Shop has
discretion over their distribution and a fair value is
determinable. When gifts in kind are distributed to recipients,
they are recorded as program expenses. If fair value cannot be
determined, neither the contribution nor distribution would be
recorded.
Inventory--nonperishable food$ 60,000
Inventory--household items 40,000
Unrestricted support--donated assets
$100,000
To record receipt of donated food and
household items.
Expenses--community service$ 65,000
Inventory--nonperishable food
$ 45,000
Inventory--household items
20,000
To record distribution of food and household
items to qualified recipients.
Cash contributionsCash
$10,000
Unrestricted support--contributions
$ 10,000
To record receipt of cash contributions.
Unconditional promises to give (solution assumes all pledges
were due in 2003)
Pledges receivable$ 20,000
Unrestricted support--contributions
$ 18,000
Allowance for uncollectible pledges
2,000
To record pledges received and 10% estimated
uncollectible pledges.
Cash
$ 15,000
Unrestricted support--contributions3,000
Allowance for uncollectible pledges 1,000
Contributions receivable
$ 15,000
Temporarily restricted support--
Contributions
4,000
To record receipt of cash, adjust the allowance
account for the overstatement of uncollected
pledges, and reclassify uncollected support.
Grant
Grant receivable$ 25,000
Temporarily restricted support--grant
$ 25,000
To accrue grant from Town of North Woods due in 2004.
Solution P21-2Hometown Memorial Hospital
Statement of Operations
For the year ended December 31, 2006
Unrestricted revenues, gains, and other support:Net patient
service revenues
($2,500,000 - $400,000 - $100,000)
$2,000,000
Other operating revenues ($300,000 + $50,000)
350,000
Income from investment in affiliate
80,000
Investment income
270,000
Unrestricted contributions
200,000
Net assets released from restrictions for
operating purposes
80,000
Total operating revenues, gains, and net assets
released from restrictions for operations
2,980,000
Expenses and Losses:
Nursing services
1,000,000
Other professional services
500,000
General services
290,000
Administrative
310,000Uncollectible accounts
150,000
Loss on sale of fixed assets
50,000
Depreciation
200,000
Total expenses and losses
2,500,000 Excess of revenues, gains, and other support over
expenses and losses
480,000
Net assets released from restrictions for
acquisitions of fixed assets
97,000Increase in unrestricted net assets
$ 577,000Solution P21-3
State Junior CollegeStatement of Current Funds Revenues,
Expenditures, and Other Changes
for the year 2003
Unrestricted Restricted Total RevenuesTuition and fees*
$2,000,000 $2,000,000
State appropriations 800,000 800,000
Local appropriations 300,000 300,000
Private gifts and grants 80,000 $200,000 280,000
Endowment income 20,000 70,000 90,000
Sales of auxiliary
enterprises 500,000 500,000Total current revenue 3,700,000
270,000 3,970,000Expenditures and mandatory transfersEducational
and general:
Instruction $2,100,000 $2,100,000
Research 30,000 $ 70,000 100,000
Student services 120,000 120,000
Operation and
maintenance of plant 180,000 180,000
Scholarships* 120,000 200,000 320,000 Educational and
general
expenditures 2,550,000 270,000 2,820,000
Mandatory transfers 100,000 100,000 Total educational and
general 2,650,000 270,000 2,920,000Auxiliary enterprises:
Expenditures 480,000 480,000 Total expenditures and
mandatory transfers 3,130,000 270,000 3,400,000Net increase in
fund
balances $ 520,000 $100,000 $ 620,000*Scholarships include the
tuition waivers and the expended restricted funds.
Solution P21-4
Community Society
Statement of Activities
For the Year Ended December 31, 2005
Changes in Unrestricted Net Assets
Revenues and gains
Contributions
$3,000,000
Membership dues
400,000
Investment income
83,000
Total revenue and gains
3,483,000
Net assets released from restrictions:
For research
$ 500,000
For fixed assets
3,789,000 4,289,000
Increase in unrestricted net assets
7,772,000
Expenses:
Program Services:
Research
2,300,000
Education
300,000
Total Program Services
2,600,000
Supporting Services:
Management and general
117,000
Fund raising
223,000
Total Supporting Services
340,000
Total expenses
2,940,000
Net increase in unrestricted net assets
4,832,000
Changes in Temporarily Restricted Net Assets
Contributions ($438,000 + $409,000)
847,000
Investment income
22,500
Gain on sale of investments
5,000
Net assets released from restrictions *
(4,289,000)
Decrease in temporarily restricted net assets
(3,414,500)
Changes in Permanently Restricted Net Assets
Contributions
37,000
Increase in permanently restricted net assets
37,000 Increase in net assets
1,454,500
Net assets, beginning
5,475,000Net assets, ending
$6,929,500
Solution 21-5
1Unrestricted Current FundTuition and fees
receivable$6,000,000
Revenues--educational and general
$6,000,000
To record tuition revenues.
Expenditures--scholarships$ 200,000
Expenditures--bad debts100,000
Tuition and fees receivable
$ 200,000
Allowance for uncollectible accounts
100,000
To record scholarships and estimated bad debts.
Cash
$4,800,000
Tuition and fees receivable
$4,800,000
To record collections of receivables.
2Unrestricted Current FundCash
$ 800,000
Revenues--sales and services of
auxiliary enterprises
$800,000
To record sales of bookstore.
3Unrestricted Current FundExpenditures--educational and
general$2,430,000
Expenditures--auxiliary enterprises170,000
Cash
$2,600,000
To record payroll.
4Unrestricted Current FundMandatory transfer to plant
funds$1,000,000
Cash
$1,000,000
To record transfer for debt service.
Plant Funds for Retirement of IndebtednessCash
$1,000,000
Fund balance--restricted
$1,000,000
To record mandatory transfer from UCF.
5 Plant funds for Retirement of IndebtednessFund balance
$ 960,000
Cash
$ 960,000
To record debt service payment.
Investment in plant accountsMortgage payable$ 360,000
Net invested in plant
$ 360,000
To record reduction of mortgage principal.
6 Restricted Current FundCash
$ 440,000
Fund balance
$ 440,000
To record restricted gift.
Solution P21-5 (continued)
7 Restricted Current FundExpenditures--instruction$ 237,000
Cash
$ 237,000
To record expenditures for program.
Fund balance
$237,000
Revenues
$ 237,000
To record revenues equal to qualifying
expenditures.
8 Unexpended Plant FundFund balance--restricted$ 44,000
Cash
$ 44,000
To record acquisition of equipment.
Investment in Plant AccountsEquipment
$ 44,000
Net invested in plant
$ 44,000
To record equipment purchased.
Solution P21-6Voluntary Health and Welfare Organization
gift1aCash
$5,000,000
Unrestricted supportcontributions
$5,000,000
To record cash contribution received.
bExpenses (by function)
$2,300,000
Cash
$2,300,000
To record operating expenses paid.
2aCash
$5,000,000
Restricted supportcontributions
Research
$5,000,000
To record restricted cash gift received.
bExpensesresearch
$2,300,000
Cash
$2,300,000
To record research expenses.
cTemporarily restricted net assets
reclassifications out
$2,300,000
Unrestricted net assets
Reclassifications in
$2,300,000
To record release of assets from temporary
restrictions.
The expenses must be reported as changes in unrestricted net
assets.
3aCash
$5,000,000
Restricted support--contributions
$5,000,000
To record cash gift restricted for capital
additions.
bConstruction in progress
$2,300,000
Cash
$2,300,000
To record construction costs incurred.
Temporarily restricted net assets
reclassifications out
$2,300,000
Unrestricted net assets
reclassifications in
$2,300,000
To record release of assets from temporary
restrictions.
Solution P21-6 (continued)
State University gift
Unrestricted Current Fund1aCash
$5,000,000
Revenues--educational and general
$5,000,000
To record unrestricted gift.
1bExpenditures--educational and general
$2,300,000
Cash
$2,300,000
To record expenditures for operations.
2 Restricted Current Fund2aCash
$5,000,000
Fund balance--research
$5,000,000
To record restricted donation.
2bExpenditures--research
$2,300,000
Cash
$2,300,000
To record research expenditures.
Fund balance--research
$2,300,000
Revenues--educational and general
$2,300,000
To record contribution revenues.
3 Unexpended Plant Fund3aCash
$5,000,000
Fund balance--restricted
$5,000,000
To record capital gift.
3bConstruction in progress
$2,300,000
Cash
$2,300,000
To record construction costs.
Fund balance--restricted
$2,300,000
Construction in progress
$2,300,000
To reclassify construction in progress.
Investment in Plant Accounts
Construction in progress
$2,300,000
Net invested in plant
$2,300,000
To record construction costs.
Solution P21-6 (continued)
County Hospital1aUnrestricted Fund: Cash
$5,000,000
Nonoperating gains--general
contributions
$5,000,000
1bUnrestricted Fund:
Expenses
$2,300,000
Cash
$2,300,000
2aSpecific Purpose Fund:
Cash
$5,000,000
Fund balanceleukemia researchgifts
$5,000,000
2bUnrestricted Fund:
Expenses
$2,300,000
Cash
$2,300,000
Due from Specific Purpose Fund
$2,300,000
RevenuesAmounts released from
restrictions for operating purposes
$2,300,000
Specific Purpose Fund:
Fund balanceleukemia researchgifts
$2,300,000
Due to Unrestricted Fund
$2,300,000
3aPlant Replacement and Expansion Fund:
Cash
$5,000,000
Fund balancepediatrics ICU--gifts
$5,000,000
3bPlant Replacement and Expansion Fund:
Construction in progress
$2,300,000
Cash
$2,300,000
Solution P21-71 Temporarily restricted net assets--
reclassifications out$20,000
Unrestricted net assets--
reclassifications in
$20,000
To record satisfaction of time restriction.
2Pledges receivable$65,000
Cash
35,000
Allowance for uncollectible pledges
$ 3,250
Unrestricted support--contributions*
96,750
To record contributions.
*To the extent that pledges are not collected by year end a time
restriction will be implied. An adjusting entry reducing
unrestricted support and recording temporarily restricted support
for the net realizable value of the uncollected pledges will be
required.
3Inventory of materials$150,000
Unrestricted support--donated materials
$150,000
To record donations of food.
Expenses--Meals$151,200
Inventory of materials
$151,200
To record expenses for food used.
4Inventory of supplies$ 27,000
Cash
$27,000
To record purchases of supplies.
Expenses--management and general$ 10,000
Expenses--Meals100,000
Inventory of supplies
$ 22,000
Cash
88,000
To record expenses incurred.
5Pledges receivable$300,000
Allowance for uncollectible pledges
$ 15,000
Temporarily restricted support--
contributions
$285,000
To record restricted pledges.
